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Puerto Rico: PROMESA draft bill, title III revised

posted by Stephen Lubben

I again offer some initial thoughts on the revised draft bill, now subject to much debate in Congress:

  • The bill now clearly provides for reference of cases from the district court to the bankruptcy court
  • There is no longer a requirement that the oversight board have an office in D.C. But the board can have offices outside of the territory it is overseeing. As Jacoby has previously noted, this opens up the possibility that cases could be filed outside of the territory, which for present purposes of course means Puerto Rico. The most obvious locale would be New York, where an board office might make sense for negotiations with bondholders.
  • I don't see a provision comparable to §921(b), which would allow for the selection of a specific judge to preside over the case.
  • The provisions regarding professional compensation and retention are no longer incorporated into title III, so title III becomes more like chapter 9 in this respect.
  • Those parts of chapter 9 that are not incorporated into title III are largely set forth within title III itself – e.g., §§929, 941, 943. Title III is chapter 9+ in all but name. The bill expressly provides that it will not be codified in title 11, however.
  • I wonder if all the implications of the definition of "trustee" in title III to mean "the board" have been thought through. For example, do they intend this to apply with regard to section 926, which is incorporated into title III?
  • The relationship between the board and the debtor during the case generally seems like it will be quite confusing. Under proposed section 315, the board will act on behalf of the debtor throughout the case, but in other instances the bill speaks as though the debtor itself will be taking action in the case.

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